Question
Ratio Analysis of S&S Air, Inc. Chris Guthrie was recently hired by S&S Air, Inc., to assist the company with its financial planning and to
Ratio Analysis of S&S Air, Inc. Chris Guthrie was recently hired by S&S Air, Inc., to assist the company with its financial planning and to evaluate the companys performance. Chris graduated from college five years ago with finance degree. He has been employed in the finance department of a Fortune 500 company since then. S&S Air was founded 10 years ago by friends Mark Sexton and Todd Story. The company has manufactured and sold light airplanes over this period, and the companys products have received high reviews for safety and reliability. The company has a niche market in that it sells primarily to individuals who own and fly their own airplanes. The company has two models; the Birdie, which sells for $53,000, and the Eagle, which sells for $78,000. Although the company manufactures aircraft, its operations are different from commercial aircraft companies. S&S Air builds aircraft to order. By using prefabricated parts, the company can complete the manufacture of an airplane in only five weeks. The company also receives a deposit on each order, as well as another partial payment before the order is complete. In contrast, a commercial airplane may take one and one-half to two years to manufacture once the order is placed. Mark and Todd have provided the following financial statements. Chris has gathered the industry ratios for the light airplane manufacturing industry.
USING the following data
please answer the following question
Calculated ratios are as follows:
Types of ratio | Formula | Computation | Ratio |
Current Ratio | current assets/current liabilities | 0.75 | 0.75 |
Quick ratio | (current assest-inventory)/current liabilities | 0.39 | 0.39 |
Cash Ratio | cash+cash equivalents/ current liabilities | 0.15 | 0.15 |
Total Assets Turnover | net sales/total assets | 1.67 | 1.67 |
Inventory Turnover | cost of goods sold/average inventory | 21.43 | 21.43 |
Receivables Turnover | net sales/average receivables | 43.05 | 43.05 |
Total debt Ratio | outside debt/total debt | 0.45 | 0.45 |
Debt Equity Ratio | outside debt/equity | 0.82 | 0.82 |
Equity Multiplier | total debt/equity | 1.82 | 1.82 |
Times Interest Earned | EBIT/interest | 6.36 | 6.36 |
Cash Coverage Ratio | EBIT-Depreciation/interest | 9.22 | 9.22 |
Profit Margin | net incomeet sales *100 | 3.36 | 3.36 % |
Return on Assets | net income/total assets *100 | 5.60 | 5.60 % |
Return on Equity | net income/equity *100 | 10.18 | 10.18 % |
Compare the performance of S&S Air to the industry. For each ratio, comment on why it might be viewed as positive or negative relative to the industry. Suppose you create an inventory ratio calculated as inventory divided by current liabilities. How do you think S&S Airs ratio would compare to the industry average?
Ratio Analysis of S\&S Air, Inc. Ratio Analysis of S\&S Air, IncStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started